Difference Between Supply Chain and Value Chain

Supply chains and value chains are both networks of companies/processes that come together to deliver a product that is of good quality, at low cost, in a timely manner. Both supply chains and value chains are made up of a well-integrated selection of processes that need to be strategically managed to deliver the highest customer satisfaction. The focus, however, of each is different; the supply chain focuses on the supply of the product from production to delivery, whereas value chain focuses on adjusting business processes to yield the highest value. The following article clearly explains each term and shows how they are similar and different to one another.

What is a Supply Chain?

A supply chain is like a chain or collection of suppliers, manufacturers, distributors, technology, information systems, transporters, etc. that come together to manufacture and sell products to customers. A supply chain will convert raw materials, natural resources and supplies into a finished product that is finally delivered and sold to the end consumer. The supply chain generally consists of a network of individual firms that are each responsible for a certain stage in the process. Supply chain strategy is used to describe the actual tasks and operations that will be followed to meet specific production goals. Supply chain management is very crucial to organizations as an efficient, low wastage, optimized supply chain will result in better quality, shorter time and lower cost. Companies such as Toyota that require a number of units that manufacture parts (tires, rims, seats, brakes, mirrors, etc.), assemble, and deliver and sell require sophisticated supply chain management systems to ensure timely production, less wastage and low cost.

What is a Value Chain?

Value chain is defined as the combination of value adding activities that are integrated together in providing the customer with better value. Value chains are focused at providing the maximum value the customer at the lowest cost. The process of creating value for the customer through linking the value adding processes of a firm (or multiple firms if part of the production process is outsourced) is called the value chain. Most corporate value chains evolve around becoming aware of the customer’s needs and requirements and then aligning the firm’s operations in a manner that efficiently and effectively meets those needs. The objective of value chains is meeting and exceeding customer’s needs beyond what was expected for the value paid. Successful value chains will result in creating competitive advantages for the firm.

What is the difference between Supply Chain and Value Chain?

Value chain and supply chain are both processes that are adopted by firms, to manage the production and value addition activities of the firm aimed at providing the customer with a good quality product that is able to satisfy their needs at a low cost. The supply chain is concerned with the manufacturing of the product and sale and distribution, whereas value chain takes another step further and looks at how additional value can be created for the product through organizing the company’s operations in a manner that provides the best value for the lowest cost. The main difference between supply chain and value chain is that supply chains follow the product from the supply to the customer whereas, in a value chain, the starting point is at the customer; evaluating customer’s needs and then tracking back to manufacturing to determine how the processes can be modified to meet these needs.

Summary:

Supply Chain vs Value Chain

• Supply chains and value chains are both networks of companies/processes that come together to deliver a product that is of good quality, at low cost, in a timely manner.

• Supply chain is concerned with the manufacturing of the product and sale and distribution. A supply chain is like a chain or collection of suppliers, manufacturers, distributors, technology, information systems, transporters, etc. that come together to manufacture and sell products to customers.

• Value chain is defined as the combination of value adding activities that are integrated together in providing the customer with better value.

• Supply chains follow the product from the supply to the customer whereas, in a value chain, the starting point is at the customer; evaluating customer’s needs and then tracking back to manufacturing to determine how the processes can be modified to meet these needs.